Dubai: The UAE’s economy is expected to go through a mild slow down during the next two years due to the sustained decline in oil prices but the GDP growth is projected to bounce back to 4.5 per cent in 2017, said Marios Marathefits, Chief Economist of Standard Chartered.

“Growth of the UAE economy is slowing, but it is not like what we saw in 2009. The policy response so far has been robust and the economy should be growing in excess of 4 per cent in next two years,” Marathefits said.

The government has been addressing the oil revenue short fall through a combination of measures such as spending cuts, rationalisation of subsidies and use of reserves to fund ongoing projects.

Standard Chartered economists have forecast a 3.8 per cent growth for the UAE economy in 2015 and 3.9 per cent in 2016, a relatively optimistic forecast compared to a 3 per cent growth projected by the International Monetary Fund (IMF).

“Government spending priorities are shifting. We expect subsidy rationalisation be the main contributor to the UAE government’s planned spending cuts of 4 per cent in 2014,” said Carla Slim, Economist, Mena (Middle East and North Africa) at Standard Chartered.

Economists said the banking sector liquidity is tightening and going forward liquidity is expected to be tighter as governments draw down deposits with banks to fund current projects.

Benefit

While tighter liquidity in the banking system may result in a slowdown in credit growth to the private sector, Marathefits said he does not expect the government fund demand to crowd-out funding for the private sector.

“On the contrary, I believe if the government continues to spend using its reserves and or through deficit financing, the private sector stands to benefit,” Maratheftis said.

Overall, the business confidence in the UAE has taken a beating over the last 12 months according Standard Chartered. “Clearly people are worried about the outcome of the current slowdown, but there is no sense of panic,” he said.

Economists said the well diversified nature of the UAE’s economy makes it more resilient to the oil market volatility and the oil prices are expected to bounce back from mid-2016. While the excess supply in the market has been shrinking, a rebound in the price will come with a lag as excess inventory is expected to dampen price for some more time.